Critical Mass Effect and Restructuring in the Transition Towards a Market Economy

28 Pages Posted: 6 Apr 1999

See all articles by Pier Luigi Sacco

Pier Luigi Sacco

affiliation not provided to SSRN

Carlo Scarpa

University of Brescia; NERA Economic Consulting

Multiple version iconThere are 2 versions of this paper

Date Written: December 3, 1998

Abstract

Restructuring firms in a transition economy produces a sort of network externality, in that the profitability of restructuring depends on the number of firms that already adopted this strategy. We investigate under what conditions a "critical mass" exists, i.e., a situation in which such externality is positive and restructuring spurs imitation, possibly leading to the eventual transformation of the whole economy. We find a critical mass effect when the main effect of restructuring is an increase in value added (i.e., aggregate demand) rather than an increase in the firm's ability to compete against rival home firms. The critical mass case becomes the typical one when competition spurs firms' efficiency.

JEL Classification: L11, L52, P21

Suggested Citation

Sacco, Pier Luigi and Scarpa, Carlo, Critical Mass Effect and Restructuring in the Transition Towards a Market Economy (December 3, 1998). FEEM Working Paper No. ETA 65.98. Available at SSRN: https://ssrn.com/abstract=142031 or http://dx.doi.org/10.2139/ssrn.142031

Pier Luigi Sacco

affiliation not provided to SSRN

No Address Available

Carlo Scarpa (Contact Author)

University of Brescia ( email )

Via San Faustino 74B
Dipartimento di Scienze Economiche
25122 Brescia
Italy
+39+030+2988+833 (Phone)
+39+030+2988+839/840 (Fax)

NERA Economic Consulting ( email )

50 Main Street, 14th Floor
White Plains, NY 10606
United States

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